Lawmakers, CEOs Tangle Over AT&T’s T-Mobile Bid, Spectrum ‘Crunch’

One side says the deal will lower consumer prices, drive innovation, and improve service.

The other side says the deal will stifle competition, lead to layoffs, and take the market back to a 1980’s-style duopoly.

Yes, the AT&T/T-Mobile show rolled into Washington, D.C. Wednesday for a Senate hearing on Capital Hill and, suffice it to say, there were diverging views of how the proposed $39 billion buyout would affect the national wireless market, as well as consumers and startups.

The hearing highlighted several fundamental debates in the telecom policy world, including whether the giant phone companies face a shortage of wireless spectrum, how serious the problem is (if it exists), and what should be done about it. Many industry experts dispute AT&T’s claims of a coming “spectrum crunch,” saying the company hasn’t even deployed all of its existing spectrum, and the spectrum it has turned on could be used much more efficiently.

Appearing before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, AT&T CEO Randall Stephenson said that his company needs to buy T-Mobile — a move that would reduce the number of national carriers from four to three (AT&T, Verizon Wireless and Sprint) — in order to increase the company’s spectrum capacity, which will “drive innovation,” and, in turn, benefit the public.

“This transaction is all about consumers,” Stephenson said. “It’s about keeping up with consumer demand and having the capacity to drive innovation and competitive prices for consumers.”

Stephenson said that by 2015, AT&T will be carrying eight times the network traffic it carries today. He warned of a looming “spectrum crunch” that could lead to higher prices for consumers.

For his part, T-Mobile CEO Phillipp Humm said his company needs to be bought because it does not own enough wireless spectrum to compete with the big boys like AT&T and Verizon Wireless, and anyway, its parent, giant German firm Deutsche Telekom, wasn’t interested in continuing to finance the the company.

The Justice Department and the Federal Communications Commission are scrutinizing the deal — and given its high-profile nature — and the fact that most voters have cell phones — Congress naturally wants a piece of the action as well.

Critics of the merger object on a number of grounds, including the possibility that the deal will lead to major layoffs, as AT&T absorbs T-Mobile and eliminates “redundancies.” Stephenson argued that the deal will actually create jobs, but it’s worth remembering the following context: AT&T laid off nearly 6,000 people last quarter, and from 2006 to 2010, the company cut over 37,000 jobs, a number greater than the population of Menlo Park, California.

Among the most vocal critics of the deal is Sprint CEO Dan Hesse, who also testified. Sprint, of course, is the number three wireless company in the country, and needless to say, it is not thrilled about the prospect that AT&T and Verizon Wireless will own 80 percent of the market if the merger is approved.

“Just say no to this takeover,” Hesse told the committee, adding that if the deal is approved both consumers and the U.S. economy risk “irreparable harm.”

Hesse argued that creating a “a 1980s-style duopoly” in which two giants dominate the market would be a “‘bridge too far’ in consolidating too much power in the hands of only two, similar companies.”

And Hesse wasn’t buying AT&T’s spectrum crunch argument.

“If AT&T invested a fraction of the $39 billion T-Mobile purchase price in its own network, it could alleviate its alleged capacity concerns, upgrade its network and deploy advanced wireless technologies, without harming wireless competition,” Hesse said.

Another concern Hesse raised was over the fees Sprint and others must pay for access to back-haul lines whenever it builds a cell tower. Thirty percent of the cost of those towers goes to the landline providers which, shockingly enough, are frequently the landline business units of AT&T and Verizon.

Hesse called the situation a “conflict of interest” and said if Sprint didn’t have to pay those fees, it could offer lower prices to consumers.

Another witness, Gigi Sohn, who is president of the D.C.-based public interest group Public Knowledge, described the merger as a “pivotal moment in U.S. antitrust law.”

“If that law means anything, this classic merger of one company buying out a smaller competitor in the same business must be denied,” Sohn said. “There are no conditions or divestitures that can make this deal acceptable. This merger is unfixable.”